What the Fed’s czars were talking about when they did nothing again at last month’s policy meeting …
“Participants noted that housing activity was likely to remain a substantial drag on economic growth over the next few quarters. Many participants drew some comfort from the most recent data, which suggested that the correction in the housing market was likely to be no more severe than they had previously expected and that the risk of an even larger contraction in this sector had ebbed. But further adjustment in the housing market appeared likely. Single-family housing permits continued to fall and inventories of unsold homes remained at historically high levels. Contacts in the building sector suggested that construction firms were attempting to reduce their backlogs of unsold homes, both by cutting back sharply on new construction and by offering substantial price incentives. Several meeting participants noted the considerable strain on some small- and medium-sized residential construction firms.

“To date, weakness in the housing market and the associated downshift in house price appreciation did not seem to be spilling over into consumer spending, which appeared to have grown at a steady pace in recent months. Retail activity in most Districts had been relatively robust and contacts in the retail sector were generally upbeat about the outlook. Several participants noted, however, that contacts within the transportation sector had reported that activity in anticipation of the holiday shopping season appeared to be softer than in previous years. Meeting participants judged that consumer expenditures going forward were likely to expand at a steady pace a little below the growth in disposable income, supported by favorable financial conditions, continued increases in employment and income, and the recent decline in energy prices. Nonetheless, many participants expressed concern that ongoing developments in the housing market could have a more pronounced impact on consumer and other spending, especially if house prices declined significantly.”

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